Pros and cons of selling through online marketplaces

insights September 12, 2017

With more and more global consumers getting online access and purchasing their first product online it’s no surprise that the value of the ecommerce industry continues to increase worldwide. Last year, retail ecommerce sales reached $1,9 trillion, accounting for 8,7% of total retail spending worldwide. eMarketer expects retail ecommerce sales to increase to over $4 trillion in 2020 [1]. Nevertheless, it remains a difficult industry to break in to: 60% of all new web shops close their virtual doors within the first four years [2]. It’s a timely and costly undertaking to build a web shop from the ground up. A successful business model that makes this a bit easier is selling online through marketplaces.

The market share of ecommerce sales through marketplaces will be 40% by 2020.

What are marketplaces?

Offering products through online marketplaces is being used by retailers more and more. Ecommerce Foundation states that the market share of ecommerce sales through marketplaces will be 40% by 2020 [3]. An online marketplace is a platform where different sellers offer their products. This marketplace sells the products and can also help with payments, fulfilment and customer service. The sellers pay a commission to the marketplace [4]. The most popular online marketplaces to date are: Amazon, eBay and Alibaba.

Advantages of selling through online marketplaces

Selling through online marketplaces has a number of advantages:

The seller can easily and often quickly access an additional sales channel. This requires little investment and most parts of the sales process are taken over by the online marketplace [5].

Finding new customers. In an effortless way, a seller can find new customers. The seller will gain additional visibility to the consumers visiting their web shop. This can also facilitate international expansion at the same time [6].

Enhance name recognition. When visitors often see the same name in the search results of an online marketplace, it adds more brand awareness. This can ensure that consumers also visit the seller’s website directly [7].

Disadvantages of selling through online marketplaces

Besides the advantages, selling via online marketplaces also has several disadvantages:

The seller must pay commission to the online marketplace. Therefore, a percentage has to be paid for each sale. When an online retailer sells products in low-margin categories, the costs can often outweigh any generated revenue [9].

Competition is high and when multiple sellers offer the same product the marketplace can determine which seller is shown [9].

Customer-specific information. It is not possible to offer a customer-specific price or specific assortment, so personalisation is not possible [3].